Why do so many NFL players go bankrupt?

[Schneed10]

Originally Posted by irish

It sounds like to you anyone who ever made a mistake can no longer be considered inteligent so to you must no intelligent people in the world.

Everyone makes mistakes, but not everyone makes mistakes as big as this.

[irish]

Originally Posted by Schneed10

The folks you speak of, the ones who got crunched by the economic meltdown, were largely the ones who speculated on the real estate market. Perhaps they were flipping houses, or buying places to rent them out, etc.

They made a couple big mistakes which, when combined, I would classify as stupid:

- They assumed real estate prices would continue to go up, even though they had already gone up way more than historical norms.

- They went into huge amounts of debt to finance it, leaving themselves on the hook for large sums of money in the event real estate prices actually came down.

You don't bet a lot to win a little. These people were taking out $400K loans on these houses and trying to sell them for an $80K profit. If you can't assess the risk inherent in that, you're a moron.

Others got hammered by economic events beyond their control. I feel sorry for those folks, but not the morons I mentioned above.

They did assess the risk, in fact being risk averse was priority but the models they used to assess their risk was flawed. Hindsight is always 20/20. It seems stupid now that we know the end result.

[irish]

Originally Posted by Schneed10

Everyone makes mistakes, but not everyone makes mistakes as big as this.

Whats the size of the mistake have to do with stupid & intelligent?

[Schneed10]

Originally Posted by irish

Whats the size of the mistake have to do with stupid & intelligent?

Everything. The results of this particular mistake forever changed the course of their life. A smart person has the sense to assess the potential consequences of their actions. A dumb person throws caution to the wind and goes through life without ever stopping to think what could come of it.

[SmootSmack]

I agree with irish (there I said it)

[Schneed10]

Originally Posted by irish

They did assess the risk, in fact being risk averse was priority but the models they used to assess their risk was flawed. Hindsight is always 20/20. It seems stupid now that we know the end result.

The flaw in the financial models was the assumption that real estate prices would continue to go up. Fail.

[Schneed10]

Originally Posted by SmootSmack

I agree with irish (there I said it)

Which part? Because I'm baffled.

[SmootSmack]

Originally Posted by Schneed10

Everything. The results of this particular mistake forever changed the course of their life. A smart person has the sense to assess the potential consequences of their actions. A dumb person throws caution to the wind and goes through life without ever stopping to think what could come of it.

I don't think these people are necessarily throwing caution to the wind here. They may actually believe that they're being smart by investing money into a business (let's say a car dealership) than using it to buy a yacht.

[SmootSmack]

Originally Posted by Schneed10

Which part? Because I'm baffled.

You can be intelligent and make dumb mistakes, even big dumb mistakes.

[freddyg12]

Originally Posted by Schneed10

The folks you speak of, the ones who got crunched by the economic meltdown, were largely the ones who speculated on the real estate market. Perhaps they were flipping houses, or buying places to rent them out, etc.

They made a couple big mistakes which, when combined, I would classify as stupid:

- They assumed real estate prices would continue to go up, even though they had already gone up way more than historical norms.

- They went into huge amounts of debt to finance it, leaving themselves on the hook for large sums of money in the event real estate prices actually came down.

You don't bet a lot to win a little. These people were taking out $400K loans on these houses and trying to sell them for an $80K profit. If you can't assess the risk inherent in that, you're a moron.

Others got hammered by economic events beyond their control. I feel sorry for those folks, but not the morons I mentioned above.

First off, I think you're talking about individual investors in the real estate market. Sure, some of them took a serious beating, but countless others have inventory that they are holding onto & waiting for the market to appreciate it, i.e. good long-term investing. The people you speak of are part of the financial crisis, but the biigger problem were mortgage backed securities on wall st.

Your example of risk assessment is pretty much calling thousands of successful developers & real estate investors a "moron." (btw, $80K profit is really good for a $400,000 investment, that's 20%)

Capitalism requires risks. If no one took the risks you speak of, there wouldn't be much entrepreunership in the US, and in turn we'd have a lot fewer goods & services.

[skinsfan69]

Originally Posted by Schneed10

Let's not sugarcoat it, you don't need an MBA, CFP, or read any financial self-help books to manage your money. You simply need basic arithmetic.

I have X amount of money. I spend Y per month. It will take me X divided by Y number of months before I run out of money. That simple.

The bottom line is these guys aren't thinking, at all. They simply WANT things. Want want want, with no regard to "should I".

A lot of what you say is true. People buys multiple cars, houses and so on. But we can look no further than our own Joe Gibbs to see that it can hapopen to anyone. I read Joe's first book and couldn't believe some of the bad investments he made. He created quite a mess for him and his family.

[Schneed10]

Originally Posted by SmootSmack

You can be intelligent and make dumb mistakes, even big dumb mistakes.

OK we'll have to agree to disagree on that one. I like to think the term "intelligent" is relative, not everyone can be considered so.

[Schneed10]

Originally Posted by freddyg12

First off, I think you're talking about individual investors in the real estate market. Sure, some of them took a serious beating, but countless others have inventory that they are holding onto & waiting for the market to appreciate it, i.e. good long-term investing. The people you speak of are part of the financial crisis, but the biigger problem were mortgage backed securities on wall st.

Your example of risk assessment is pretty much calling thousands of successful developers & real estate investors a "moron." (btw, $80K profit is really good for a $400,000 investment, that's 20%)

Capitalism requires risks. If no one took the risks you speak of, there wouldn't be much entrepreunership in the US, and in turn we'd have a lot fewer goods & services.

We're getting off-base here because we're starting to talk economy, but I can't let these statements go without addressing them.

The mortgage backed securities were essentially the same thing. They created investments which were insanely leveraged, and were dependent upon the continued growth in real estate prices in order to support the fundamentals. As soon as the prices dropped, you had an asset that couldn't be unloaded, and you were stuck riding it down.

A 20% profit would be nice if you had a debt to equity ratio of about 1.0. But taking out a $400K loan when you only have $50 - $100K in the bank is foolish because of the risk you face. You have to liquidate all of your personal assets just to cover the cost of ownership. Not intelligent assessment of business risk.

There's calculated risk, and then there's foolish risk. Nobody advises anybody to put 100% of their savings in one stock, it's a big risk but that doesn't make it a wise one. A smart risk might be flipping houses to the extent you have cash to cover the cost of the investment. Or a smart risk might be to put your money in a diversified set of aggressive investments. But leveraging yourself beyond your ability to cover the debt is never smart, it's business 101.

[Schneed10]

Originally Posted by skinsfan69

A lot of what you say is true. People buys multiple cars, houses and so on. But we can look no further than our own Joe Gibbs to see that it can hapopen to anyone. I read Joe's first book and couldn't believe some of the bad investments he made. He created quite a mess for him and his family.

Fair point, and proves that you can be considered an intelligent person yet make big mistakes. But I only consider Gibbs intelligent because he's made so many smart moves and done so many smart things. His huge number of smart moves and decisions outweigh the big mistake.

After all he found a way to make the money back and then some. He followed a big mistake with smarter investments and smarter choices.

But man, you've got to do a lot of impressive things to recoup your reputation after doing something like these athletes are doing.

[saden1]

Bottom line. S10 has financial training, they don't. They dumb, he smart.